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H&R Block Announces Glitch in RALs for 2011

December 27, 2010 · 26 comments

If you’re hoping to take advantage of Refund Anticipation Loans (RALs) and related products during this tax season, you’re going to have to look pretty hard. Many third party preparers will not be offering those products this year, citing financial difficulties with underwriters.

Some of the financial difficulties stem from the economy. RALs (and similar products) are essentially loans secured by the promise of a tax refund. Fees for tax preparation products and tax preparation services are generally subtracted from the refund amount and the balance issued to the consumer in some form (check, debit card, direct deposit, etc.) in advance of the taxpayer’s actual refund less interest and loan fees.

In a tough economy, banks and other lenders are growing wary of offering consumer loans. Complicating factors, the IRS is sticking to their guns in a statement made back in August to no longer provide tax preparers, banks and lenders with the “debt indicator” that lenders use to determine eligibility for RALs. The debt indicator is an electronic acknowledgment to tax preparers advising whether any part of a taxpayer’s refund has been earmarked for offset due to outstanding tax debts or priority obligations such as unpaid child support or delinquent student loans. In previous years, the IRS provided this information, free of charge, to third party preparers, who then made the decision to offer a variety of loan products depending on the answer. Beginning in 2011, that information will no longer be provided to third parties, prompting many lenders to pull out of the business altogether.

One such lender, HSBC, pulled out of a deal to provide loans to H&R Block, the nation’s leading tax provider. In response, H&R Block took the lender to court and the two eventually reached a settlement for the upcoming tax season where the tax prep service agreed to cover any defaults on loans made by HSBC.

Since then, HSBC has changed its mind. Over the Christmas holiday, HSBC’s banking supervisory agency, the Office of the Comptroller of the Currency, advised HSBC to stop offering these loan products to H&R Block. HSBC promptly put an immediate end to their contract with H&R Block.

H&R Block has since expressed disappointment at HSBC’s actions but indicated that they have “several other financial products available and under development.” There’s no word yet on what those products will be.

Jackson-Hewitt, the nation’s number two tax preparer, has indicated that it will make RALs and related products available to taxpayers in 2011. The tax prep company relies on Republic Bank & Trust Co. to fund those loans.

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{ 17 comments… read them below or add one }

1 Joe December 27, 2010 at 2:30 pm

RALS are a ripoff. You can pay up to 100% or more in interest if the RAL provider doesn’t get all of their money back from the IRS. If you file your return electronically, it usually takes the IRS only 3 weeks to process your return. You can get your refund in as little as 8-10 days. If you are going to do a RAL, read the fine print. Be careful of preparers that won’t file your taxes without you agreeing to a RAL. I’ve done my own taxes for years. They’re not as hard as one might think.

2 Evan December 27, 2010 at 2:47 pm

If H&R Block felt that they were a fantastic investment couldn’t they just obtain a rather large loan from an investment bank for general use purposes and then be on the hook themselves?

3 Guy December 28, 2010 at 2:17 pm

H&R Block is discussing doing the Instant RALS them selves. Rals are not rip offs, if you have outstanding student loans or other government loans, or child support, then you shouldn’t be doing RALS. And I always explain every fee and possible set back one might experience, but I wouldn’t personally do a IRAL or RAL unless I had an unexpected medical emergency or the like. It’s just some people who apply really don’t need too thy just want their money now . It our society today. Everybody wants it now. Don’t blame he messenger. The product is good, not all tax preparers explain every detail(which is bad) and we as a people can’t wait and we are greedy.

4 Rick Melton December 29, 2010 at 1:56 pm

It will be interesting to see what Block does about this. In the long run I wish the RAL had never been invented. It is not a rip off but it is expensive. I wish I knew all the back stories as to why IRS discontinued the debt indicator, and why the Office of the Comptroller of the Currency (OCC)would not allow HSBC to make any of the loans. The latter is interesting for HSBC wanted to back out after IRS gave notice that they would no longer issue the debt indicator. Makes one wonder if they cried to mama (the OCC) and mama helped out. The problem with Block just financing these is I believe the IRS does not allow that.

5 Urbie December 29, 2010 at 2:20 pm

Having worked for HRB the past two seasons (not doing it this year), I have to echo Guy’s comment. The majority of my clients were low-income EITC taxpayers who owed no income tax and had refunds coming — which they viewed as essentially free money, which they wanted as soon as possible, regardless of the fees. I went out of my way to explain the fees, the alternatives, and so on — my standard line was, “The rule of thumb is, the faster you want the money, the more it costs you.” I did not gloss over the fees — I’d ask them to look at my screen, which displayed the numbers for the Instant RAL (when available, which it is not always), the 1-2-day RAL, the RAC, and the fee-out-of-pocket option. I would ALWAYS tell the client, “The cheapest way to do it — and what I do with my own return — is to pay for the tax prep today, and have your refund sent to you or direct deposited in 8-15 days, here’s the schedule of when you can expect the deposit to happen — the IRS always processes refunds on Fridays,” etc., etc., etc. We were trained not to steer the client toward any particular option — just to explain what their choices were — but being frugal by nature, I generally tried to emphasize that they could save significant bread by waiting a relatively short time for a refund (via RAC, if they couldn’t afford to pay for their return out of pocket). But 95% of my clients still wanted the 1-2-day RAL. We were not ripping them off — they were eager to pay an extra fee to get the money faster. This was even true of the Emerald Advance product, which is a short-term loan at a high rate of interest — a $45 fee up-front, and 36% interest (or 9% if they were a prior tax client), for a loan of a few hundred bucks to tide them over the holidays. Again, I would explain the terms to the client, answer their questions, and not deceive them in any way. And you know what they told me? That Emerald Advance, despite the fee and interest, was substantially cheaper than other sources of credit (of which there aren’t many) available to low-income people. I used to feel bad, in a way, whenever I sold someone an Emerald Advance — but they were happy to sign up.

6 Bill December 30, 2010 at 12:15 am

I agree with Urbie and Guy. i own my own Tax Preparation business and have been offering Refund Loans for 20 years. I have never tried to steer someone to a RAL, but 1/3 of my clients demand them. If I don’t offer them, they will simply go down the street to someone else who does offer them. It is a case of giving the customer what they want. I will still be offering RALs this year, but greatly reduced loan amounts and higher fees from the bank. I was with HSBC for 16 years and chase bank the last 2 years, and we had high approval rates and reasonable prices. I think the loss of the Refund loans is unAmerican. We are a consumer based economy, the job of business is to deliver what the customers want, at as reasonable price as possible. Last year I had people getting a $9500 Refund loan at a cost of approx. $150 plus $110 for Tax preparation. I don’t know about you, but I cann’t go to a bank and borrow $9500 for only $150, the banks always want at least 10 % minimum. And all these morons that say we are to figure the loan rate on an annual basis,They are only borrowing it for 8-15 days, so the rate has to be enough to where the ban makes something in 8-15 days. It isn’t a yearly loan. The people who do RALs cann’t get a regular loan,and they wouldn’t pay it back if the bank gave one to them. Every year I have about 30 people who the government takes their refund for delinquesnt student loans or back child support, and not one of those people will tell you up front, but we all know when we are being pursued by creditors. The RAL clients are hoping to steal the banks money and never pay them back. So don’t be too hard on the greedy banks, when there are also greedy low income people out there too. I had better stop, I could go on about this for hours.

7 taxguy January 4, 2011 at 10:09 pm

H&R Block has developed a cheaper, and faster loan product. contact your local H&R Block office for the details. NO hidden fees, just a interest rate that is a fraction of the Republic Bank RALs interest rate that Liberty, and Jackson Hewitt are offering….. Oh… Did I mention that H&R BLocks product is INSTANT MONEY for approved individualls? To find out more just call your local H&R Block office

8 Guy January 6, 2011 at 1:59 am

Yes it is called the “Emerald Loan”, it is a 30 day loan, it is not based on your tax return, you don’t even have to have your taxes done at H&R Block to apply for the loan. It is based on your Beacon Score. 20% to 40% Approval Rating. Block will also be funding all of their RACs at a 98% approval rate.

9 Heather January 15, 2011 at 5:44 pm

We were just told that Block is not allowed to do the Emerald Loan either. It was scheduled to start today 1/15/2010 . The only bank product available is the Refund Anticipation Check (8-15 days).

10 Ellen January 19, 2011 at 2:09 am

It doesn’t bother me that Block isn’t offering RALS. It does bother me that their commercial promised up to $9999 “fast” implying you’d still get it immediately or in a day or two. Then when you phone to ask if you can get your money immediately they now tell you “Yes, we are able to get your money fast” and they don’t tell the truth until you go into their office and have your taxes done.

11 Guy January 21, 2011 at 12:08 am

Did you know that the word “Impatient” came into the dictionary sometime in the 13th century!

12 G January 21, 2011 at 12:10 am

d

13 Rebekah Dunham February 6, 2011 at 6:32 am

On January 27, 2011, I went to H&R Block as I do every year. I go the minute I get my W2′s, because I usually desperately need that money. so, this year, a rather cheerful tax preparer informs me that they no longer do the RAL’s and that I should be happy because I would save all that money. Well, I don’t care about saving money; I needed that money…NOW! The woman told me that the government had taken away the right for tax prep companies to do these loans and said that Jackson Hewitt couldnt do them either. If I had ANY inkling that I could have gone somewhere else and gotten my money that day, I would’ve left immediately and gone to get my money! Why was it neccesary to lie to me? Was it just this one woman who made up bs or is this a line that they are told to say? Because I was uninformed, I am homeless; just sitting here, waiting on my damn money to show up on that damn emerald card…

14 david October 18, 2011 at 9:35 am

People like myself need these loans my car was smashed up and I have two children one of which is in school I haven’t the credit score to get out a loan so my money which is owed to me should be available when I need it.and the comments about low income people being greedy is awful why would the rich need to take out loans is that not greedy my lord and why blog about something that does not concern you if people want to borrow from there own money then allow them it must be needed for some reason or else people would not need to do it

15 Kate November 29, 2011 at 8:31 pm

Went to H&R Block today for a RAL and was told that unless we were already customers we would probably not be approved. But we were not told this on the phone when I made the appointment. I was told to bring our information, was told the fees, that we didn’t have to now or in the past be H&R customers. So needless to say we were not approved but were told if we would like to try next year we could if we had them do our tax return this year! Nice real Nice! We have no heating oil, our car broke down today, and my hours have been cut – thanks for the help —–NOT!

16 Nitaaaa December 1, 2011 at 3:43 pm

I agree with David 100% it is our money and maybe the “greedy low income people” really need that money bad.. But I guess it’s ok for the greedy rich people to get money when they need it, lets not forget that the low income workers help keep banks open to..

17 Ken Banta January 8, 2012 at 10:21 am

I can certainly understand where the banks are coming from on this even though they are to blame for a lot of the economic turmoil that we are in, and have been in for a while.

At any rate it’s probably all for the better that these RAL’s are harder to get since there is a charge for this service and a lot of the consumers that get them can’t really afford to loose the fees they are charged. Not being able to get one of these loans forces them to cut back and scrape by, but in the end they will end up with more in there pocket.

My sugestion is to take advantage of the H&R Block 20% tax software discount through http://taxreturnrelief.com and put even more cash back in your pocket. Then scrape by until your refund comes…

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